What Are Paid-Up Additions in Life Insurance?

Updated · Aug 13, 2022

Life insurance works in the following way:

  • You pay monthly premiums
  • You get a certain amount of coverage in exchange
  • You get a death benefit and, depending on the policy—accumulate cash value

But with paid-up additions, you can get more coverage without increasing your premiums.

Learn how in our detailed guide below.

What Is a Paid-Up Addition to Whole Life Insurance?

Let’s start by discussing the definition of paid-up addition.

It is a life insurance provision that allows policyholders to increase the death benefit without undergoing medical underwriting.

Other ways of increasing purchasing additional coverage may require another medical exam. But with a paid-up additional insurance (PUA) rider, you don’t have to worry about your health affecting your policy.

Plus, you can grow your whole life insurance cash value by investing your dividends. Some providers also allow you to make additional payments.

There are usually limits on how much coverage you can purchase with a PUA.

Still, it is a valuable option for those who need to boost their death benefit, especially considering that one’s income tends to grow with age.

How Paid-Up Additions Work

Mutual life insurance companies issue dividends to policyholders, usually on a yearly basis.

The amount depends on the company's performance.

The paid-up addition option uses the dividend to buy extra coverage. Some whole life policies let you purchase a PUA with an additional premium instead of dividends.

Regardless of how you've purchased it, PUAs function as small policies. This means they have their own cash value, death benefit, and dividends.

The PUA itself also earns dividends, and the insurance face value keeps growing over time.

As such, a whole life insurance policy with a paid-up rider will accumulate a higher cash value more quickly than a policy without the rider.

That said, paid-up additional policies usually have a lower cash value and death benefit.

It may take years until they reach a desirable size.

Benefits of Paid-Up Additions

Paid-up insurance has several advantages.

The main one is that if the paid-up addition option uses the dividend, you can increase your policy's face value without spending an extra dime.

Plus, you don’t have to undergo another medical exam.

Just note that not all policies come with a PUA option. And if you decide to add it later, you might have to undergo a medical exam.

Last but not least, not all insurance companies offer dividends. So, research your options carefully before choosing a provider.

Example of Paid-Up Addition

Let’s see all we explained above in context.

Imagine a 40-year-old woman purchases a whole life policy with a $2,000 premium and a $100,000 death benefit.

After a while, she contributes an additional $3,000 to a paid-up additions rider.

This will increase her cash value by $3,000 and her death benefit by $15,000. If she keeps getting paid-up additions, her cash value and death benefit will keep growing.

The same scenario applies if she uses dividends instead of additional premiums.

But instead of making extra payments, she can reinvest her annual dividends.

Wrap Up

Overall, a PUA is a great way to increase the value of your whole life insurance policy.

With paid-up additions, you can add extra coverage without spending any extra money or going through additional medical exams.

So, if you're looking for a way to beef up your policy's death benefit, a PUA rider might be right for you.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.